Feb. 23, 2017

Options Backtesting Results

Historical average return: +$330.04 (backtested over 17.1 years)
Historical success probability: 15.0%

Summary

Put options on XLY, the main consumer discretionary ETF, are unusually cheap and present an attractive U.S. equity hedging strategy due to its correlation and beta to the S&P 500. Options backtesting analysis at today's pricing shows positive historical returns, which is often unheard of for hedging strategies. These backtesting results are only positive because of how cheap implied volatility is right now on XLY relative to its historically realized moves, even compared to other sectors and macro ETFs.

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